1042 vs. 1042S.

IRS Tax form time:

Ever wonder what the difference is between the 1042 and the 1042-S?

Form 1042 is the annual withholding tax return for US source income of foreign persons (it’s for non-residents of the US).

Form 1042-S is a tax form for foreign individuals which reports income from a United States-based source.  In other words, non-residents who conduct some form of business within the United States.  There are 5 copies of the 1042-S, 1 for the IRS, one for the withholding agent and 3 for the recipient.

This can include investments or capital distribution.

The form is sent to the non-residents by the bank or corporation that handles the transaction.

Form 1042-S makes it easy for non-resident individuals to keep track of the income that was generated within the United States as well as how much money was withheld for tax purposes, that would cover for any potential income tax liabilities.

Foreign workers and students who are considered non-resident aliens and are working in the United States are subject to tax withholding.  So they would receive the 1042-S, as an annual information return, to outline any monetary amounts given to them by a US based institution or business (employer or school).

The IRS says that any withholding agent (such as an employer, business, or university) that paid any amount subject to withholding (as described on Form 1042-S on page 4) to a non-resident alien would need to submit a 1042-S information return for every payment recipient.

Some of the payments which are required to be reported on Form 1042-S include but are not limited to: corporate distributions, interest, rents, royalties, compensation for dependent and independent services, pensions and other deferred income, and most gambling winnings.

Some payments are not subject to withholding such as scholarships used for tuition, expense, books, and fees for universities. Also, any service payment that was performed in the person’s country of origin is not subject to withholding. However, these payments are still required to be reported on a 1042-S form. There are more circumstances that are detailed on page 4 of Form 1042-S.

For non-resident alien employees, the form’s purpose is somewhat similar to the W-2 form that employees who are American citizens receive from their employers.

The withholding agent files the 1042-S form with the IRS and sends a copy to the payee for information purposes. However, employment earnings are not the only transaction that the form covers.

Non-resident aliens have different laws that regulate tax withholdings than resident aliens. It is important that employers, businesses, universities, and anyone who pays foreign nationals any type of payment to know the resident status of their payees, for example, for tax purposes, resident aliens are treated the same as US citizens.  You get to be a “resident alien” if you meet the “green card test” or the “substantial presence test” for the calendar year.  If they do not meet either one of those tests, they are considered just to be an alien.

A 1042-S is not required  if any of the amounts paid are to residents of a US possession or territory as long as the payee is a US citizen, resident alien, or US national.

Tax treaties exist between many countries and the US which override the withholding rate to be withheld off a distribution to a non-resident of the US. 

Regardless of whether or not taxes are withheld from the transaction amount, any withholding agent that pays an amount of money to a non-resident alien in the US is still required to provide and file a 1042-S.

Form 1042; http://www.irs.gov/pub/irs-pdf/f1042.pdf

Form 1042-S; http://www.irs.gov/pub/irs-pdf/f1042s.pdf

If you are required to file Form 1042-S, then you must file form 1042, annual withholding tax return for US sourced income of foreign persons.

http://www.irs.gov/pub/irs-pdf/i1042s.pdf

 

 

The two certainties in life… Death and Taxes.

This post is a brief look at estate filing rewuirements with the Canada Revenue Agency (CRA) and the role and requirements of an executor in Canada.

In Canada, there is no estate or succession tax, unless you consider the taxes owing to the CRA on the estate at death.  RC4111(E) for English is what I used to do my research on this area, which can be tricky if you have no experience dealing with Estates, or with the CRA; http://www.cra-arc.gc.ca/E/pub/tg/rc4111/rc4111-e.html.

Here is what makes it complicated… Your loved one dies and there is money left in the estate and by money, I’m referring to bank accounts, some investments and maybe an asset owned in the name of the deceased, like a car, or even a house.  Before you, or the person responsible (the executor) can begin removing things from the deceased’s name into someone else’s name – usually yours – they have to first go to the CRA and find out if the deceased owed any taxes. 

Aside from information already on their systems, the CRA will know if there are taxes owing by the deceased based on what has already been filed.  But what about stuff not filed yet?  One way the CRA determines if there are any taxes owing is by having the executor complete the filing of all tax returns owing for the deceased within 60-90 days of their date of death.  Then, if there is no amount owing, the CRA provides a certificate called a clearance certificate which the executor can then present to banks, etc along with the death certificate in order to move funds and investments over to the surviving member.

If a clearance certificate is not received and funds are disbursed and the estate owes taxes, the CRA can then hold the executor liable for those funds!

The returns the CRA will be looking for include a T1 (individual tax return) for the decreased covering the period from January 1st of the year of death up to the date of death, reporting all income from employment and investments.  Report income earned after the date of death on a T3 Trust Income Tax and Information Return.  A T3 reports income from trusts for the estate (all the assets of the deceased make up the estate).

The capital gains (profit on any item bought) on their investments also have to be accounted for an added on this return.

If you file the final return late and there is a balance owing, the CRA will charge a late filing penalty (LFP).  They will also charge interest on both the balance owing and any penalty. The penalty is 5% of any balance owing, plus 1% of the balance owing for each full month that the return is late, to a maximum of 12 months – as of January 2012.  The LFP may be higher if the CRA has charged a LFP on a return for any of the three previous years.

In certain situations, the CRA may cancel the penalty and interest if you file the return late because of circumstances beyond your control.  If this happens, complete Form RC4288, Request for Taxpayer Relief, or include a letter with the return explaining why you filed the return late. For more information, go to Fairness and Taxpayer Bill of Rights or see IC07-1, Taxpayer Relief Provisions.

Here is the 2011 CRA guide for preparing returns for deceased people;

http://www.cra-arc.gc.ca/E/pub/tg/t4011/t4011-e.html

Ever wondered what a holding company is for the purposes of taxation? Wonder no longer! Read on…

A holding company is a company whose sole purpose is to hold shares in another company.  It does not produce goods or perform services.  

If a holding company owns a majority of shares in that company, it becomes the parent company.

The reasons for establishing holding companies are diverse;

They may be created to operate for a short period of time or as part of a long-term plan. Factors to consider include the nature and revenue of the business, the jurisdiction in which the business owner resides, and the business owner’s long term goals.

Advantages:  Minimizing risks and exposure, a holding company can protect an owner’s interests by keeping creditors at a distance while removing cash from an exposed operating company to a holding company on a tax-free basis.  

In this scenario, owners can take risks through the operating company while limiting the risk to that company and not exposing the holding company because the holding company performs no transactions and therefore does not move cash and other assets around.  The holding company is exposed to risk to the extent of its investment in the operating company.  So if a holding company lends money to the operating company, it can secure the debt and become a secured creditor (A secured creditor is a creditor with the benefit of a security interest over some or all of the assets of the debtor) of the holding company giving the holding company priority when it is time for the debt to be repaid (especially in bankruptcy).

Tax Benefits:  Corporate – Depending on the percentage of outstanding shares held by the holding company in the operating company, the dividends paid to the holding company may be tax-free.  Individual – For shareholders with a high marginal tax rate, a portion of tax on dividends from taxable Canadian companies may be deferred until dividends are paid by the holding company to the shareholders.  You may be able to locate the holding company in a province with a lower corporate tax rate. 

Estate Planning:  Holding Companies may help with succession planning by facilitating the transfer of wealth to the next generation.  Shares in an operating company can be transferred to younger family members through a holding company by way of an estate freeze, structured to cap a person’s tax liability upon his or her death and transfer any future growth to family members.

Disadvantages:  Set-up costs.  Holding companies require additional set-up costs and these expenses can be ongoing, including the cost of preparing annual financial statements and corporate tax returns.  If the number of shares is significant, then this is not so much of a concern. 

No tax benefits or negative tax implications.  As losses realized in a corporation are only available to offset other income earned by the corporation.  Holding companies are also not eligible for the $750,000.00 capital gains deduction. 

Double taxation may exist if personal tax is required to be paid as well as corporate taxes levied on the income earned by the holding company.  To avoid the negative tax consequences associated with the payment of funds from a holding company to a shareholder, include the repayment of shareholder loans and taxable dividends (which may result in a refund of corporate tax to the holding company).

Director’s Liability:  Many moons ago when I worked for the CRA, I came across many holding companies set up in order to protect directors from being responsible for unremitted source deductions, unremitted HST (PST and GST)corporate taxes and they also used passive directors  – usually not involved in day-to-day operations of the business – but they are all still liabile for any debts incurred by the corporation.  Passive directors should of course be aware of what the corporation is doing and should ensure that they are providing due diligence or have director’s liability insurance in place to protect them.

 

5 Qualities of Remarkable Bosses

I just finished reading an incredible article on managing staff on Inc Magazine.  It was written by Jeff Haden and is called 5 Qualities of Remarkable Bosses.  It is available here; http://www.inc.com/jeff-haden/the-5-qualities-of-remarkable-bosses.html 

I’m a huge fan of strong, successful management in organizations especially in light of the fact that every organizations’ most precious commodity is its people.  It’s always been said that “people don’t leave jobs, they leave managers”.

But if you have not clicked that link yet, and you’re still reading, here are the 5 qualities according to Jeff, and to be honest, the reason this article resonated with me is because some of this stuff he mentions can be taught – they teach you in graduate school – while other skills you either have or you do not.  I try each and every day to make sure I am aligned with these qualities and I think if you don’t do these, you really should.  

“Remarkable bosses aren’t great on paper. Great bosses are remarkable based on their actions”.

Here are the 5 according to Jeff…

1. Develop every employee.

I totally agree here that it is the managers responsibility to train, coach, mentor and provide learning opportunities for each and every employee.  By doing this you are showing your employees on a daily basis that they matter and it makes their days better which produces more productive and comfortable employees.  The organization wins here because they are getting constant feedback instead of having to wait for the twice a year formal performance appraisal process.

2. Deal with problems immediately.

Nothing kills team morale more quickly than problems that don’t get addressed. Interpersonal squabbles, performance issues, feuds between departments… all negatively impact employee motivation and enthusiasm and are extremely distracting, because these problems never go away.

As we all know, small problems always grow into bigger problems.  It’s best to not count on the fact that these problems will go away, because at the end of the day someone has to deal with it.  It should be the manager, dealing with the issue head-on, no matter how small.

3. Rescue your worst employee.

Almost every business has at least one employee who has fallen out of grace: Publicly failed to complete a task, lost his cool in a meeting, or just can’t seem to keep up. Over time that employee comes to be seen by his peers—and by you—as a weak link.  Before you consider removing the “dixie cup” from the group, put your full effort into trying to rescue that person instead.   Step up the mentoring and coaching you provide.  A struggling employee has tons of upside; rescue him and you make a tremendous difference. 

4. Serve others, not yourself.

As a remarkable manager you do not need the spotlight.  you have it already.  Your staff, on the other hand, need all the recognition they can get, and face time with senior manager is even more important and their level, so no matter what you to, do not try to take credit for something they have done.  The staff know your contribution and support to them, your team and the organization and trust me, if you’re doing that well, senior management already knows it too.   

When employees excel, you and your business excel. When your team succeeds, you and your business succeed. When you rescue a struggling employee and they become remarkable, remember they should be congratulated, not you.

You were just doing your job the way a remarkable boss should.

5. Always remember where you came from.

I came from an organization which, in my opinion, had terrible management practices, and I went to an organization which had amazing management presence and I took with there all my past experiences about how to not treat employees and made sure not to do any of it. 

I am also very aware of what it’s like being the “new guy” and how people look at you and over time come to get to know you and realize how much you can add to an organizaiton so I make it a policy to always engage the newest employees, ask them questions, talk to them, show them around and give them a work buddy so they don’t ever have to experience that feeling I went through.

I remember where I came from and I know what I hated so it is the responsibility of a remarkable boss to make sure it doesn’t happen again.  Personally, I also try to remember a fact or 2 about each and every employee I come across – along with the correct pronunciation of their names.  It means a lot and it allows me to have a conversation with them beyond “how’s the weather”.

So if you take a step back and look at the support you get from your boss – directly or indirectly – you probably already know what you like about their style and what needs improvement.   Don’t forget the good when thinking about the bad.  for all you know your manager could be trying to improve that too.

Did you know the MRQ (Revenu Quebec) has an office in Toronto?

Did you know that The Secrétariat aux Affaires Intergouvernementales Canadiennes had an office in Toronto?  So does Revenu Quebec…

The Secrétariat advises the Government of Québec on all Canadian intergovernmental matters, coordinates Québec government activities in Canada, assures the defence and promotion of Québec’s interests, and collaborates to strengthen links with Canada’s francophone and Acadian communities.

The mandate of this office which opened in 1973, is to promote and safeguard Québec’s interests in Ontario, Manitoba and Nunavut. The head of the Bureau du Québec à Toronto represents the Québec government in its relations with these three governments and is also in charge of Québec’s Vancouver branch office, which is mandated to maintain relations with the governments of British Columbia, Alberta, Saskatchewan, the Yukon and the Northwest Territories.

Contact information

Bureau du Québec à Toronto
20 Queen Street West, Suite 1504
P.O. Box 13
Toronto, Ontario M5H 3S3

Telephone: 416 977-6060
Fax: 416 596-1407
E-mail: bqtoronto@mce.gouv.qc.ca

Head: Paul-Arthur Huot

Intergovernmental and institutional relations

One of the main tasks of the Toronto office is to maintain and develop Québec’s intergovernmental and institutional relations with Ontario, Manitoba and Nunavut and facilitate exchanges with them. To that end, the office plays an active, ongoing liaison role with government and public departments and agencies such as universities, colleges and municipalities.

Economy

The office’s solid market expertise enables it to offer a wide range of economic and commercial consultation services to Québec businesses. It also promotes Québec products. Thus, the office:

  • supports Québec businesses seeking to penetrate the Ontario and Manitoba markets;
  • advises businesses in its territory looking to invest in Québec or market their products there;
  • provides services proper to the regional economic context;
  • bolsters business partnerships.

Culture

The office fosters an ongoing dialogue with the artists of Ontario and Manitoba to promote exchanges and develop a network for disseminating the work of Québec artists. Its activities are also aimed at promoting Québec’s cultural works and informing the people of Ontario and Manitoba on Québec culture.

Francophonie

The Office nurtures privileged ties with the Francophone organizations that are present on the territory it covers, thus fostering exchanges and partnerships between the Francophone representatives of these regions and Québec. It plays an active role in managing the programs arising out of the Québec Policy on the Canadian Francophonie, and in monitoring the various cooperation agreements.

E-mail: bqtoronto@mce.gouv.qc.ca

In the “Francophonie” section of its Website, the Secrétariat aux affaires intergouvernementales canadiennes offers useful information concerning the policy’s implementation and available financial assistance pursuant to the policy

Communications and public affairs

The Toronto office represents and promotes Québec. It informs Québec government authorities of the major political and economic issues in its territory. Hence, it:

  • provides information and documentation on Québec;
  • maintains relations with the national press;
  • makes a daily survey of major events in its territory;
  • informs Québec government authorities of, and advises them on, the major political, economic and social issues in Ontario and Manitoba.

 

UPDATE:

Taxation

The ministère du Revenu du Québec (or MRQ) has a team of tax specialists in Toronto who USED to be located in the Bureau du Québec à Toronto, to carry out the necessary verifications concerning Canadian firms that do business in Québec, however, they have moved!

The new Toronto office offers taxpayers and agents a tax information telephone service. It also makes available a complete inventory of tax forms.

As of December 2014, their office moved, and is now located at:

400 University Avenue, Suite 1500.

Toronto, ON M5G 1S7

 

Documents may be dropped off at this address between 8 am – 12 pm, and 1 -4 pm.

There is a drop box!

The new telephone number for Revenu Québec in Toronto is: 416.645.8770 x 645 4000

The new office sent me a note to update the information – and I thank them – but they state that with the awesome Clic Revenue Service they offer online, it is very rare that the general public would need to contact them.  I agree.

Ms. Nicole Lemieux is now the Chief Representative.

The MRQ office email: saic-bqtrev@mce.gouv.qc.ca

 

For further information on the Bureau du Québec à Toronto, feel free to contact the office’s personnel.

E-mail: bqtoronto@mce.gouv.qc.ca

http://www.saic.gouv.qc.ca/bureauduquebec/bureau_quebec_toronto_en.htm

Now that’s service!